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Sometimes, even goodwill has a price

November 15, 2010
Tax due on free oil change?
 

Many Illinois dealers provide "goodwill" repair services on vehicles that are out of warranty. However, not all of those dealers are aware that the parts used in goodwill repairs are subject to the state’s 6.25 percent Use Tax—even though the customer does not pay for the repair.

Use tax, reported on Line 12 of Form ST-1, must be collected even on service as innocuous as a free oil change, an Illinois Revenue Department spokesman said, because the oil is a "tangible product" given to the end user, the customer.

 

A local dealer who offered a free promotion recently learned that during an audit.

 

In most repair work, the customer is charged sales tax on the parts used in the repair. In the case of warranty and recall parts, sales tax is not charged on parts because the sales tax originally paid (when the vehicle is purchased) is deemed to cover all parts used in warranty repairs.

 

Parts used to repair or enhance new or used vehicles held in inventory likewise are covered by the sale tax collected on the eventual sale of the vehicle.

 

In contrast, goodwill repairs are provided at no charge to the customer at the option of the dealer and/or the factory. Because no legal obligation exists to compel the dealer to provide the goodwill repair, the revenue department considers the repair to be a gift.

 

Illinois use tax applies to tangible products purchased tax-free for resale which are used or consumed by the dealership in its use, including as a gift to a customer.

 

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